Valeant Pharmaceuticals' Turnaround Gains Momentum With a Better-Than-Expected First Quarter

Valeant Pharmaceuticals (NYSE: VRX) CEO Joe Papa has said for a while that the company is a great turnaround opportunity. But when the drugmaker reported its 2017 fourth-quarter results in February, it was clear that any turnaround wouldn't happen quickly.

On Tuesday morning, Valeant announced its 2018 first-quarter results. This time around, there were some signs that Papa's predicted turnaround is gaining momentum. Here are the highlights from Valeant's first-quarter update.

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Valeant Pharmaceuticals results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Sales

$2 billion

$2.11 billion

(5.4%)

Net income (loss) from continuing operations

($2.69 billion)

$628 million

N/A

Diluted earnings (loss) per share (EPS)

($7.68)

$1.79

N/A

What happened with Valeant Pharmaceuticals this quarter?

A year-over-year decline in revenue of more than 5% might look bad at first glance, but it actually reflected considerable progress for Valeant. The company's biggest business segment, Bausch + Lomb/international, posted sales of $1.1 billion in the first quarter, down 3% from the prior-year period. However, the decline stemmed from divestitures and discontinuations. The segment's sales grew organically by 2%.

There were several bright spots for the Bausch + Lomb/international segment. Revenue from China grew 24% year over year. Sales for the segment's global vision care business increased 15% over the prior-year period.

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The story looked even better for Valeant's branded Rx segment. First-quarter sales for this business totaled $593 million, a year-over-year drop of 6%. Again, divestitures and discontinuations were the culprit. Adjusting for these items and currency fluctuations, branded Rx sales went up 8% over the amount from the first quarter of 2017.

Valeant's only segment that didn't generate organic growth was its U.S. diversified products business. This segment generated revenue of $299 million, a drop of 14% from the prior-year period. Even adjusting for divestitures, discontinuations, and currency fluctuations, sales for the business still fell by 9% year over year. Valeant continued to feel the negative impact of the loss of exclusivity for several older products.

Why did Valeant's bottom line deteriorate so much when the revenue decline wasn't nearly as bad? The biggest factor was that the company took a $2.2 billion hit from goodwill impairment charges related to the Salix and Ortho Dermatologics businesses. In addition, Valeant received a much larger tax benefit in the first quarter of 2017 than it did in the first quarter of 2018.

Factoring for these and a few other items, the company's adjusted net income increased 14% year over year to $312 million. Valeant also reported adjusted EBITDA of $832 million, down 3.4% from the prior-year period. This slip stemmed primarily from the company's divestitures in 2017.

What management had to say

Valeant Chairman and CEO Joe Papa said:

Looking forward

As Papa's comments indicated, Valeant upped its 2018 full-year guidance. The company now expects full-year revenue between $8.15 billion and $8.35 billion. Valeant's previous guidance projected full-year revenue between $8.1 billion and $8.3 billion. Full-year adjusted EBITDA is now forecast to land between $3.15 billion and $3.30 billion, up from the previous guidance range of $3.05 billion to $3.2 billion.

There are several new product launches that could help Valeant in 2018, including glaucoma treatment Vyzulta, over-the-counter eye drop Lumify, and acne topical treatment Retin-A Micro 0.06%. The company also expects to launch colonoscopy preparation product Plenvu in the third quarter of 2018. In addition, Food and Drug Administration approval decisions for acne treatment Altreno and plaque psoriasis medication Bryhali are expected later this year.

Investors won't see another quarterly report from Valeant Pharmaceuticals. That's because the company is changing its name to Bausch Health Companies effective in July 2018. Joe Papa stated that this name change "is a major step forward in our transformation." With organic growth in its two biggest segments and an upward revision to its 2018 guidance, a turnaround just might be underway for the company.

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